POLAND - 2020/05/04: In this photo illustration a Spotify logo seen displayed on a smartphone. ... [+]
Comedy superstar Joe Rogan’s exclusive licensing deal with Spotify, announced earlier this week, is a watershed moment in the development of podcasting as a major media industry segment. Rogan’s move may have been precipitated by the COVID-19 pandemic, but the crisis has merely accelerated a transition that has been in the works for the past couple of years.
Podcast producers have been in the process of figuring out where revenue is going to come from as listenership continues to grow and production values continue to increase. The latest research from Edison Research’s Infinite Dial study indicates that 37% of Americans ages 12 and up, or over 100 million people, listen to podcasts monthly. For a while there were two significant revenue sources for podcasts: users, via donations and crowdfunding; and businesses, via advertising and sponsorships.
More recently, paid subscription podcast services have started, including Luminary, a VC-backed startup that launched just over a year ago. Spotify has moved aggressively into podcasting by acquiring several major podcast production and publishing tool companies for hundreds of millions of dollars, well beyond the $160 million that Luminary has raised in venture funding to date. The big differences between Luminary and Spotify are that Spotify already has a huge audience and doesn’t charge extra for podcasts.
Meanwhile, iHeartRadio and NPR have been banking on ads and sponsorships; the two are running neck-and-neck as the podcast publishers with the largest audiences. iHeartRadio is essentially building a future of podcasting as an on-demand form of its traditional commercial radio business.
However, ad and sponsorship revenue is evaporating during the COVID-19 pandemic. This is accelerating podcasters’ quests for other sources of revenue, and it was likely a reason why Joe Rogan sought a deal with the likes of Spotify.
The big question has been whether services like Spotify that have been acquiring podcast content will restrict it to their own platforms. Spotify hasn’t done this ... yet. But starting later this year, the Joe Rogan Experience will be exclusive to Spotify (including free accounts), so that people who listen to podcasts on Apple
Licensing is a fact of life in the music and television industries, but it’s new to podcasting. Podcasts are subject to copyright, which means that podcasters have a set of exclusive rights to their podcasts that includes the right to distribute them and perform them publicly. Licenses give others rights to do these things in exchange for money or other considerations. Until now, podcasters simply put them up online and made them available freely to anyone who wanted to listen to them—i.e., they didn’t bother with licenses.
But that’s going to change. A year ago, when Luminary launched its service, it caused a major backlash from the podcasting community by making free podcasts available on its app but hampering the publishers’ ability to earn revenue from ads and crowdfunding. Many high-profile podcasters—including Joe Rogan—demanded that Luminary stop making their podcasts available because it had no license for them. (Rogan has a history of guarding his intellectual property: he has been accusing other comedians of plagiarizing his material for years.)
Yet the idea of direct consumer payments for podcasts has grown very slowly. Luminary, for example, has been said to have only 80,000 subscribers and has had to drop its price from $8 to $5 per month. Spotify is including podcasts in its music service, and not charging for them separately, as a way of diversifying its offerings and helping it compete against rivals such as Apple Music, YouTube Music, and Amazon
Until now, it was also the case that music services like Spotify could save money by offering podcasts, because unlike music, they haven’t required royalty payments to record labels or other rights holders. But that’s changing too. Spotify will reportedly be paying Rogan over $100 million for his podcast. Although Rogan is a podcasting superstar, other podcasters will surely follow—just as other content platforms will surely follow Spotify into offering exclusive podcasts in addition to music or video. In particular, the money-losing Luminary is looking increasingly like an acquisition target for the likes of Apple or Netflix. Amazon effectively does this already through its Audible subsidiary; it just calls them “Audible Originals” instead of “exclusive podcasts.”
Joe Rogan has effectively made the water safe for podcast licensing. Just as musical artists and TV shows do all the time, more and more podcasters will license their material to their choice of platforms on appropriate terms, and more service platforms will have their own sets of licensed podcast content. Just as the TV shows available on Netflix
These developments are causing great concern among indie podcast app developers (like Marco Arment, CEO of Overcast), which stand to lose access to content. But they don’t really portend the end of the good old days of ubiquitous free podcasts. Getting users to pay directly for podcasts will continue to be a tough challenge, because—unlike music—people have no history of ever paying for them. Instead, we’re headed for a market with a choice of models, more like television. TV started out as a handful of broadcast networks that made their programming available for free and made money from ads; then it branched out into crowdfunding (public television) and subsequently paid subscriptions (cable), pay-per-view (boxing matches), and paid subscription on-demand (Netflix, Hulu, Disney+, etc.).
Wall Street understands the longer-term significance of Spotify’s deal with Joe Rogan: at this time of writing, Spotify’s stock price has increased an incredible 17% on the news. Even after the COVID-19 crisis eases and advertisers come back, more podcasters will continue to embrace licensing. Successful podcasters will have more ways of finding revenue to cover their production costs, and the market will be richer for it.
